413 F.

2d 658
19 Wage & Hour Cas. (BN 46

CLIFTON D. MAYHEW, INC., Appellant,

v.
W. Willard WIRTZ, Secretary of Labor, United States Dept. of
Labor, Appellee.
W. Willard WIRTZ, Secretary of Labor, United States Dept. of
Labor, Appellant,
v.
CLIFTON D. MAYHEW, INC., Appellee.
Nos. 13015, 13016.

United States Court of Appeals Fourth Circuit.

Argued March 7, 1969.
Decided July 3, 1969.

Philip F. Herrick, Washington, D.C., for Clifton D. Mayhew, Inc.

Donald S. Shire, Atty., Dept. of Labor (Edward D. Friedman, Acting
Solicitor of Labor, Bessie Margolin, Associate Solicitor, Sylvia S. Ellison,
Chief Trial Atty., and Robert E. Nagle, Atty., Dept. of Labor, on brief) for
W. Willard Wirtz.
Before HAYNSWORTH, Chief Judge, and BRYAN and CRAVEN,
Circuit Judges.
CRAVEN, Circuit Judge:

This action was brought by the Secretary under Section 17 of the Fair Labor
Standards Act of 1938, as amended, 1 to enjoin Mayhew, Inc. from violating
overtime provisions of the Act and to recover unpaid overtime compensation
said to be due under Section 7 of the Act. Mayhew pleaded in exoneration
Section 10 of the Portal-to-Portal Act,2 which affords a complete defense if an
employer proves 'that the act or omission complained of was in good faith
conformity with and in reliance on any written administrative * * *
interpretation' of the Wage and Hour Administrator. After discovery both

parties moved for summary judgment which was granted for the Secretary.
Mayhew appeals maintaining (1) that it showed good faith reliance on the
Administrator's Interpretive Bulletin 776 and that, therefore, the district court
erred in ruling against it and (2), in the alternative, that there was a triable issue
of fact as to its good faith. The Secretary cross-appeals contending that the
district court erred in refusing to award interest on the accrued wages found to
be owed to Mayhew's employees. We affirm the decision of the district court.
2

Relevant to Mayhew's good faith defense is its past experience with the Wage
and Hour Division. Mayhew is a painting subcontractor, whose work consists
almost entirely of painting apartment houses, hospitals, Hotels, barracks,
swimming pools, new construction, and the like. In January and February of
1961 Mayhew was inspected by the Wage and Hour Division. At that time
defendant's president, Clifton D. Mayhew, retained John B. Kneipple, an
attorney specializing in labor law, who handled the ensuing negotiations with
the Secretary's Investigation Supervisor. At issue in those negotiations was the
extent to which defendant's operation was covered by the Act. Correspondence
between Kneipple and the Investigation Supervisor indicate that Mayhew at
that time relied heavily on Interpretive Bulletin 776, the Administrator's
interpretation of the Act's coverage of the construction industry.

On April 24, 1961 Kneipple wrote a letter to the Wage and Hour Division,
sending a copy to Mayhew. Portions of this letter, set out below, clearly
indicate an awareness of legislation then before Congress which on May 5,
1961, became the 1961 Amendments to the Fair Labor Standards Act:

. . . I have just received a copy of the bill (H.R.3935) which was adopted by the
Senate on April 20, 1961. It amends Section 3 and defines the expressing
'enterprise engaged in * * * the production of goods for commerce' to include
'any such enterprise which is engaged in the business of construction or
reconstruction, or both, if the annual gross volume from such enterprise is not
less than $350,000.' * * * Should this particular amendment be adopted, its
legislative history may shed some light as to the views of Congress concerning
the applicability of the Act to construction at the present time. It is our
impression that H.R. 3935, which, incidentally, is supported by the
Administration, is intended to broaden rather than reduce coverage . . .

I intend to follow this legislation closely and find out what I can about what is
intended.

Kneipple was retained by Mayhew on a case-by-case basis and when, after he

and the Investigation Supervisor could not agree on a settlement of the 1961
case and it was referred to the Regional Office where no further action was
taken, he terminated his formal services. However, Kneipple and Mayhew did,
after the 1961 Amendments were enacted, have occasion to discuss their effect
on defendant's operation.
7

The complaint in the instant litigation was filed April 21, 1967, wherein it was
alleged that defendant's operation was covered by Section 3(s)(4) of the Act, 3
which is a part of the 1961 'enterprise' amendments to the Act and read
substantially as quoted and emphasized in Kneipple's April 24, 1961 letter to
the Wage and Hour Division. Mayhew did not contend that its operation was
not in fact within the Act's coverage. As previously stated the defense was,
rather, the good faith defense provided by Section 10 of the Portal-to-Portal
Act. The administrative interpretation relied on by defendant is the
Administrator's Interpretive Bulletin 776, Subpart B. 29 C.F.R. 776.22 et seq.
Defendant places particular emphasis on the following language from that
Bulletin:

. . . (The) erection, maintenance or repair of dwellings, apartments, hotels,

churches and schools are not covered projects. Similarly the construction of a
separate, wholly new, factory building, not improvement of an existing covered
production plant, is not covered. Interpretive Bulletin 776.26, 29 C.F.R. 776.26.

Construction of a new factory building, even though its use for interstate
production upon completion may be contemplated, will not ordinarily be
considered covered. Interpretive Bulletin 776.27(c)(1), 29 C.F.R. 776.27.

10

If Mayhew relied in good faith on Bulletin 776 and did not believe that its
operation came within the Act's coverage there is clearly no liability under the
Act. The statute does not specify whether the good faith standard in Section 10
of the Portal-to-Portal Act is subjective or objective. The courts have
interpreted the statute both ways.4 However, the legislative history of Section
10 demonstrates, we think, that Congress intended the standard to be an
objective one, and we so hold.

11

Representative Walter, one of the Managers of the bill in the House and a
member of the Conference Committee, commented:

12

The defense of good faith is intended to apply only where an employer

innocently and to his detriment, followed the law as it was laid down to him by
government agencies, without notice that such interpretations were claimed to

be erroneous or invalid. It is not intended that this defense shall apply where an
employer had knowledge of conflicting rules and chose to act in accordance
with the one most favorable to him. Vol. 93, Part 4, Cong. Rec. 4390.
13

On signing the Portal-to-Portal Act, President Truman submitted a message to

Congress in which he stated:

14

I wish also to refer to the so-called 'good faith' provisions of Sections 9 and 10
of the Act. It has been said that they make each employer his own judge of
whether or not he has been guilty of a violation. It seems to me that this view
fails to take into account the safeguards which are contained in these Sections.
The employer must meet an objective test of actual conformity with an
administrative ruling or policy. If the employer avails himself of the defense
under these Sections, he must bear the burden of proof. U.S.Code
Congressional Service, 80th Congress, First Session, 1947, p. 1827.

15

Applying this standard to the facts of this case, we think the undisputed facts
establish that Mayhew could not after enactment of the 1961 'enterprise'
Amendments have entertained a good faith belief in the continuing vitality of
Interpretative Bulletin 776 in its application to a construction business grossing
more than $350,000 per annum. The letter of defendant's attorney to the
Investigation Supervisor recognized the Congressional intent to broaden the
Act's coverage. The extended coverage to the construction industry in particular
was dramatically apparent. The piecemeal coverage of construction employees
prior to 1961 is illustrated by the language of the Interpretative Bulletin upon
which defendant relies for his defense:

16

The provisions of the Act expressly make its application dependent on the
character of an employee's activities, that is, on whether he is engaged 'in
commerce' or in the 'production of goods for commerce including any closely
related process or occupation directly essential to such production.'
Interpretative Bulletin 776.22(a), 29 C.F.R. 776.22.

17

Unless construction work is physically or functionally integrated or closely

identified with an existing covered facility it is not regarded as covered
construction because it is not closely enough related to or integrated with the
production of goods for commerce . . .. Interpretative Bulletin 776.26, 29
C.F.R. 776.26.

18

The Senate Report on the 1961 Amendments estimated that the enterprise
provisions would extend the Act's coverage to approximately 1 million

additional employees in the construction industry.5 '(Prior) to 1961 the Fair

Labor Standards Act applied only to those employees who themselves engaged
in commerce or in the production of goods for commerce.'6 Under the earlier
law employees working in the same enterprise could be treated differently so
that while one employee was covered, another-- working side by side-- was
not.7 'By the provisions of the 1961 Amendments, all employees of various
enterprises whose activities related to the movement of goods in commerce . . .
became subject to the Act . . ..'8 The commerce test for bringing a construction
business within the terms of the Act after 1961 was based on the activities of
the entire enterprise and not on any construction project or on the activity of
any particular employee. See generally Childress v. Earl Whitley Enterprises,
Inc., 388 F.2d 742 (4th Cir. 1968).
19

Interestingly, the minority report of Senators Goldwater and Dirksen on the

proposed 1961 Amendments noted that 'the bill is extraordinarily far-reaching
in expanding the coverage features of the act. It would cover the following
presently noncovered employees: Employees of employers in the construction
business who are engaged in erecting, maintaining, or repairing dwellings,
apartments, hotels, churches, schools and new factory buildings. It would
simply be necessary to show that the enterprise has two or more employees
handling goods that had moved in interstate commerce and that it did an annual
volume of business of $350,000. It does not take a very large construction
business to do an annual volume of $350,000.' 9 The dissenters cited the
Administrator's Interpretative Bulletin 776 for authority that at the time of their
report such enterprises were not within the Act's coverage. The plain
implication was that the exemption would be lost if the bill were enacted.

20

Where an employer, from correspondence and consultation with his attorney,

had knowledge of the language of legislation amending the coverage provisions
of the Act and of language of an Interpretative Bulletin of the Administrator,
and where the two are obviously conflicting, we think he does not objectively
act in 'good faith' when he chooses to 'believe' the one exempting him from
coverage. The law had been changed and the employer knew it. 'If he did not
know, it was because he did not look, or looking, did not see, or want to see
what was so plainly there.' Mitchell v. Raines, 238 F.2d 186, 188 (5th Cir.
1956). On the pleadings, answers to interrogatories, admissions on file, and
affidavits the district court correctly decided that defendant did not act in good
faith reliance on Interpretative Bulletin 776. Since there was no genuine issue
as to any material fact, summary judgment was properly entered for the
Secretary.

21

Finally, we do not accept the Secretary's contention that the district court erred

in not including in its order provision for prejudgment interest on the wages
found to be owing defendant's employees. A suit for an injunction brought by
the Secretary under Section 17 of the Act is essentially equitable in nature,
Wirtz v. Jones, 340 F.2d 901 (5th Cir. 1965); Wirtz v. Robert E. Bob Adair,
Inc., 224 F.Supp. 750 (D.C.W.D.Ark.1963); Wirtz v. Alapaha Yellow Pine
Products, Inc., 217 F.Supp. 465 (D.C.M.D.Ga. 1963), in which the trial court
has broad discretion to fashion its decree according to the circumstances of each
case. We think that the district court did not abuse its discretion in refusing to
award pre-judgment interest.
22

Accordingly the decision and order of the district court is

23

Affirmed.

29 U.S.C.A 201 et seq

29 U.S.C.A. 251 et seq

29 U.S.C.A. 203(s)(4) was amended by the Fair Labor Standards Amendments

of 1966, P.L. 89-601, effective Feb. 1, 1967. Defendant's operation is now
covered by 29 U.S.C.A. 203(s)(3)

Compare Addison v. Huron Stevedoring Corp., 204 F.2d 88, 93 (2d Cir. 1952),
cert. denied, 346 U.S. 877, 74 S.Ct. 120, 98 L.Ed. 384 (1953), (subjective);
Van Aalten v. Hurley, 176 F.Supp. 851, 856 (S.D.N.Y.), (subjective), with Kam
Koon Wan v. E.E. Black, Ltd., 188 F.2d 558 (9th Cir. 1951), (objective);
Campbell v. Jones and Laughlin Steel Corp., 96 F.Supp. 189, 194
(W.D.Pa.1951), (objective); Burke v. Mesta Mach. Co., 79 F.Supp. 588, 611
(W.D.Pa.1948), (objective). See also Martinez v. Phillips Petroleum Co., 283
F.Supp. 514 (E.D.Idaho 1968)

Senate Report No. 145, April 10, 1961, 87th Congress, First Session, 2
U.S.Cong. and Adm.News (87th Cong., 1st Sess., 1961) p. 1650

State of Maryland v. Wirtz, 269 F.Supp. 826, 835 (D.Md.1967), aff'd 392 U.S.
183, 88 S.Ct. 2017, 20 L.Ed.2d 1020 (1968)

Senate Report No. 145, supra note 5 at 1651

State of Maryland v. Wirtz, supra note 6

Senate Report No. 145, supra note 5 at 1695